NEW MODELS FOR OLD-AGE SECURITY - EXPERIMENTS, EVIDENCE, AND UNANSWERED QUESTIONS

The escalating costs of traditional social security systems are forcin g countries to reevaluate the formal programs that provide income main tenance support to the aging This article suggests a reform strategy b uilt around three systems, or ''pillars,'' to provide old-age security -a public pillar with mandatory participation, a private, mandatory sa vings plan, and a voluntary savings system. Three variations of this m odel are being implemented in different countries: the Latin American model, in which individual workers choose an investment manager for th eir retirement funds; the OECD model, in which employers, union truste es, or both choose the investment manager for an entire company or occ upation; and the Swedish notional account model, a reformed pay-as-you -go first pillar that may be supplemented by a second, funded pillar. Preliminary empirical evidence on the efficiency and growth effects of pension reform, mostly from Chile, indicates' that the impact on nati onal saving and financial market development and through these, econom ic growth, has been positive and possibly large. Problems concerning h igh administrative costs and regulations that distort investment decis ions remain to be resolved, however.